Author Archive for Jeff Deist

Swiss Central Bankers Don’t Like Gold

Swiss National Bank governors sound a lot like Fed and ECB central bankers when it comes to the upcoming Swiss referendum on gold. It might deprive them of needed “flexibility.”  And you might be surprised by how much the SNB has increased the country’s money supply since 2008, despite our image of the Swiss franc as a more stable (or less unstable) currency:

The Swiss National Bank (which is run by a bunch of Keynesian dunderheads – not too surprising for a central bank, but somewhat surprising for Switzerland) is trying its best to somehow thwart the upcoming referendum on gold. If the referendum is successful, at least 20% of the SNB’s assets would have to be held in gold – and the gold would have to be kept in Switzerland.

Not surprisingly, the central bankers argue that this would “severely crimp their flexibility”, apparently completely unaware of the irony. Crimping the “flexibility” of central bankers is a good thing after all. They are doing enough damage as it is. We actually are not quite sure what they are complaining about, since they will still be able to create money out of thin air in nigh unlimited quantities.

However, if they once again more than double the money supply as they have done since 2008 – inter alia to buy up foreign exchange in order to manipulate the CHF’s exchange rate – they will be forced to buy gold as well to keep the 20% reserve level intact if the referendum succeeds.

Switzerland money supply

Swiss monetary aggregates. Monetary inflation in Switzerland has gone hog-wild since 2008 (note especially the more than doubling of M1 which is roughly equivalent to TMS-1). And yet, the people responsible for this printathon are worried about “deflation” (seriously). It is of course no wonder that these inflationist bureaucrats hate gold.

German Bundesbank awards Carl Menger Prize

Regardless of the merits or demerits of Mme Rey, Can you imagine the US Fed awarding a prize named for an Austrian economist?

DB prize


French economist Hélène Rey has received the Carl Menger Prize for Economics, which this year was awarded for the first time. Andreas Dombret, member of the Executive Board of the Deutsche Bundesbank, presented her with the award, which carries prize money of €20,000, at the annual meeting of the Verein für Socialpolitik in Hamburg. “Hélène Rey’s research has substantially advanced the academic discussion; it has also found its way into the concrete work of central banks,” Mr Dombret said during the award ceremony. The job of economics, he continued, is to explain economic interrelationships and to use these explanations as a basis for making economic policy designed to increase public welfare.

Austrian Economics vs. Keynesian Economics in One Simple Chart

Courtesy of The Austrian Insider.

AE vs. KE


Mises on Secession

In light of the upcoming Scottish independence referendum, some quotes by Mises are appropriate. Too bad the Scots’ idea of independence is Salmond and the EU, not Wallace and Bruce.


No people and no part of a people shall be held against its will in a political association that it does not want. (Nation, State, and Economy, p. 34)

It makes no difference where the frontiers of a country are drawn. Nobody has a special material interest in enlarging the territory of the state in which he lives; nobody suffers loss if a part of this area is separated from the state. It is also immaterial whether all parts of the states territory are in direct geographical connection, or whether they are separated by a piece of land belonging to another state. It is of no economic importance whether the country has a frontage on the ocean or not. In such a world the people of every village or district could decide by plebiscite to which state they wanted to belong. (Omnipotent Government, p. 92).

The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars. (Liberalism, p. 109).

More great quotes, plus an explanation by Hans Hoppe of “democracy” as understood by Mises, here.


Ron Paul Draws Big Crowds at Mises Institute Brazil Conference

Dr. Paul was received like a rock star at the 2014 Conferência De Escola Austríaca in Sao Paulo, with more than 400 people attending his keynote speech.  Thanks to Helio Beltrao of Mises Brazil for hosting Ron and putting on a fantastic event.

More photos here, and Ron’s report here. Many more Facebook photos here.

Ron Helio


Goldman Sachs on Scottish Independence

A senior economist at Goldman Sachs has weighed in on the upcoming Scottish independence vote, and it’s not pretty:

Goldman warned that public services would have to be cut if Scotland goes it alone, and that the country would face much higher borrowing costs. But the most worrying consequence, the bank predicted, would be that uncertainty over a currency union would cause a run on sterling and a capital flight with echoes of the eurozone crisis. ”The most important specific risk, in our view, is that the uncertainty over whether an independent Scotland would be able to retain sterling as its currency could result in an EMU-style currency crisis occurring within the UK,” wrote Kevin Daly, senior economist at Goldman.


Agnosticism is almost certainly warranted with respect to the politics of the referendum itself. The Scots will choose the yoke of London or the yoke of Brussels, the Pound or the Euro. A Scottish currency is neither discussed nor even considered. But it is a distinct pleasure to watch elite interests panic at the thought of losing even some degree of centralized control over a country of only 5.2 million people.

And the endless push for centralization and control extends beyond currency:

“One of the main lessons from the euro area crisis is that a reasonably high degree of fiscal and/or financial integration is necessary, as a means of effective risk sharing, for a monetary union to work,” Mr Daly wrote.

This brings to mind the late Harry Browne’s famous quote: “Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, ‘See, if it weren’t for the government, you wouldn’t be able to walk’”. Browne’s dictum applies perfectly to the Eurozone: first the ECB destroys any vestige of monetary sovereignty via the Euro, and effectively monetizes the sovereign debt crisis. Then it begins, via the loathsome European Parliament, to make demands for integration of fiscal policy as well. After all, once you’ve accepted the Euro it’s awfully hard to argue for the continued ad hoc issuance of sovereign debt without regard to the impact on other Eurozone partners.

One MEP has already warned poor Scotland (lacking its own central bank) that under “EU law” (sic) it must use the Euro if it votes for independence:

Olli Rehn, vice president of the European Parliament and former commissioner for economic and monetary affairs, said in a letter to chief secretary to the Treasury Danny Alexander the use of sterling in Scotland is prohibited unless Westminster grants explicit permission. All three main political parties have already refused to allow Scotland to retain the pound in case of a ‘Yes’ vote, making this option illegal under EU law, which requires a country to have access to an independent central bank to use a currency. Alex Salmond, Scotland’s First Minister, argued this would not stop the country from using the existing currency, but Rehn has moved to prevent that option. He wrote: “As to the question whether ‘sterlingisation’ were compatible with EU membership, the answer is that this would simply not be possible since that would obviously imply a situation where the candidate country concerned would not have a monetary authority of its own and thus no necessary instruments of the EMU”.

There is no happy ending here for the Scots, who regardless of the referendum vote are highly unlikely to become the “Singapore of the North.”



The Mythical “Wealth Effect”

Seeking Alpha has a nice article debunking the tired “wealth effect” concept. We see this phony phrase trotted out endlessly, but it’s helpful to understand it as combining both Keynesian and Monetarist elements:


Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending. — Ben Bernanke, 2010

Across all financial media, between both political parties, and among most mainstream economists, the “wealth effect” is noted, promoted, and touted. The refrain is constant and the message seemingly simple: by increasing people wealth through rising stock and housing prices, the populace will increase their consumer spending which will spur economic growth. Its acceptance is as widespread as its justification is important, for it provides the rationale for the Federal Reserve’s unprecedented monetary expansion since 2008. While critics may dispute the wealth effect’s magnitude, few have challenged its conceptual soundness. Such is the purpose of this article. The wealth effect is but a mantra without merit.

The overarching pervasiveness of wealth effect acceptance is not wholly surprising, for it is a perfect blend of the Monetarist and Keynesian Schools.While its exact parentage and origin appears uncertain, its godfather is surely Milton Friedman who published his permanent income theory of consumption in 1957. In bifurcating disposable income into “transitory” and “permanent” income, Friedman argued the latter dictates our spending and consists of our expected income in perpetuity. If consumer spending is generated by expected income, then surely it must also be supported by current wealth?

Happy Birthday Dr. Ron Paul!

Today’s is Ron Paul’s 79th birthday. I’ve had the pleasure of knowing Dr. Paul for several years, and he is one of the most thoroughly decent, thoughtful, and humane men one could ever hope to meet. And by the way, Ron is exceedingly fit and has the energy of a 35 year old. In his case age really is just a number.
ron carol
Not everyone knows the extent to which Ron helped Lew Rockwell get the Mises Institute started.  In those early days a fundraising letter from Ron on behalf of the Institute raised critical seed money. And over 30 years Ron has never hesitated to support our mission, speaking at countless functions on our behalf. His 2008 and 2012 presidential campaigns introduced thousands of young people to the works of Mises and Rothbard, reinvigorating interest in the Austrian school. Of course Ron’s initial motivation to run for Congress was his interest in Austrian economics, an interest that became a passion after seeing Mises speak publicly in Houston. Dr. Paul later went on to develop professional relationships with both Murray Rothbard and Hans Sennholz.
Happy birthday, Ron.  And thank you for all that you do.

Econometrics Attacked from the Left

In this interesting article published in Economia (a trade journal for Chartered Accountants), we find a left-progressive argument against math and its overly prominent role in neoclassical economics:


This discontent was born in the post-autistic economics movement, which started in Paris in 2000, and spread to the United States, Australia, and New Zealand. Its adherents’ main complaint was that the mainstream economics taught to students had become a branch of mathematics, disconnected from reality.

The revolt made little progress in the years of the Great Moderation of the 2000s, but was revived following the 2008 crisis. Two important links with the earlier network are US economist James Galbraith, the son of John Kenneth Galbraith, and British economist Ha-Joon Chang, author of the best-selling 23 Things They Don’t Tell You about Capitalism.

In a manifesto published in April, economics students at the University of Manchester advocated an approach “that begins with economic phenomena and then gives students a toolkit to evaluate how well different perspectives can explain it,” rather than with mathematical models based on unreal assumptions. Significantly, Andrew Haldane, executive director for financial stability at the Bank of England, wrote the introduction.

The Manchester students argue that “the mainstream within the discipline (neoclassical theory) has excluded all dissenting opinion, and the crisis is arguably the ultimate price of this exclusion. Alternative approaches such as post-Keynesian, Marxist, and Austrian economics (as well as many others) have been marginalised. The same can be said of the history of the discipline.” As a result, students have little awareness of neoclassical theory’s limits, much less alternatives to it.

Thinking Makes it So for WaPo

Matt O’Brien at the Washington Post knows that Abenomics can work for the Japanese people, but only if they really, truly believe in it with all their hearts.

Head in Hands

This is not satire:

So what’s going on here? Well, it might sound like a hokey religion, but central banking is really a Jedi mind trick. Just saying something can be enough to make it happen. That’s because the power of the printing press gives their words a distinct power. Well, that and the fact that the economy is already one big self-fulfilling prophecy. See, when people are confident, they spend and invest more, which then justifies their initial optimism—and keeps them spending and investing. The opposite, of course, happens when people are fearful. So, in other words, the economy alternates between virtuous and vicious circles. Central banks try to keep our positive spirals from getting out of control, and our negative spirals from happening at all. And that means convincing us to believe what they want us to.

This is embarrassing and horrifying at the same time, especially coming from a WaPo section called “Wonkblog.” Regime media believe, with religious fervor, that governments and central banks exist to prod us in one direction or another– with a sharp stick if needed. And they are hostile toward (if not literally unaware of) concepts of capital and production.

Stop the “Public Policy” Nonsense

News of this hilarious study by two professors from Princeton and Northwestern is sure to excite the booboisie.  It turns out– gasp– that John Q and Sarah Public have zero influence over government policy. We can only wish Mencken was alive to comment. What’s the next great revelation, your vote doesn’t count?


Just for the record, there is not supposed to be a “policy” for society, the economy, or you as an individual. We’re supposed to be free.

Our humble advice: Ignore any individual or organization who casually uses the expression “public policy.” It’s a terrible example of statist language, and it necessarily implies the speaker’s acceptance of a host of evil assumptions. Libertarians especially have no business employing the phrase.  Worrying about public policy is like worrying about whether a Mafia hitman uses a garrote or a bullet.

Is Your Checking Account a Deposit Contract?

The blogger Bionic Mosquito has a post relating to today’s Mises Daily article on fractional reserve.  Mosquito makes that point that modern deposit contracts are not bailments, with the depositor retaining ownership. Instead, the individual depositor in effect enters into a short term credit agreement with the bank.


Of course most depositors certainly do view their bank accounts as a form of bailment.  Hence they say “I’m going to the bank to get my money.”  There is still a widespread view of banks as safe holders of money deposits.  The average Joe doesn’t deposit his paycheck and think, “OK, I just entered into a short term credit arrangement.  I can call the loan at any time though.”

Hans-Hermann Hoppe makes this point in Chapter 6 of The Economics and Ethics of Private Property:

First off, as a matter of historical fact fractional reserve banks never informed their depositors that some or all of their deposits would actually be loaned out and hence could not possibly be ready for redemption at any time. (Even if the bank were to pay interest on deposit accounts, and hence it should have been clear that the bank must loan out deposits, this does not imply that any of the depositors actually understand this fact. Indeed, it is safe to say that few if any do, even among those who are not economic illiterates.) Nor did fractional reserve banks inform their borrowers that some or all of the credit granted to them had been created out of thin air and was subject to being recalled at any time.

Regardless of one’s view of fractional reserve, Hoppe’s observation is correct: banks don’t exactly advertise this fundamental aspect of how they do business.

The real problem is not fraud or fractional reserve banking per se. Eliminate cartelized money (the Fed) and the false security blanket (FDIC) and the market would sort through issues surrounding deposit banks and lending banks.

Politicking Think Tanks vs. the Mises Institute

The execrable Washington Post discusses how DC think tanks have become increasingly activist in the political sense, and (thereby) increasingly self-serving:

Most think tanks were once idea factories. They sponsored research from which policy proposals might flow. In the supply chain of political influence, their studies became the grist for politicians’ programs. But think-tank scholars didn’t lobby or campaign. Politicians and party groups did that. There was an unspoken, if murky, division of labor.

But it’s disappearing, and many think tanks — liberal and conservative — have become more active politically. They are now message merchants, packaging and merchandizing agendas for a broader public.


Rest assured the Mises Institute will never carry water for any politician, political party, or legislation.  We will never advocate any kind of “public policy.” We will never lobby.  And we will never curry favor with the political class.

Update on Toshio Murata, student of Mises in 1959-60

Toshio Murata was a student of Mises in New York, and translated Human Action into Japanese. He is almost single-handedly responsible for creating an Austrian/Misesian movement in Japan.

Marc Abela of Mises Japan sends us this update, along with some photos of this amazing man recently giving a presentation at age 90:


Entering his 90s this year, professor Toshio Murata, direct scholarship student to Mises back in 1959-60 in NY, picture taken earlier today, close to Murata-sensei’s home in Nagano prefecture (Japan).

Murata-sensei shared with us the several meetings he would get invited to where Hazlitt would at times show up to proofread Mises’ English, or with Ayn Rand and others (Bettina Greaves, etc) around or showing up in some of the seminars… He was right in New York when Hazlitt was working on renewed editions of his One Lesson (1946) and remembers to this day being handed out freshly printed versions of the new edition on their way to the store (he was probably referring to the 1961′th edition I guess with the added new chapters here and there). Stories go back 50+ years back in time and Professor Murata is turning 91 this year, but all his memories remain quite impeccable it seems.


Mises U Starts Tomorrow! Don’t Miss Free Live Streaming of Your Favorite Speakers

Join the Mises Institute as we welcome more than 130 students from all over the world to our Auburn campus! Mises U 2014 is a full week of Austrian scholarship that can’t be found anywhere else on the planet.

Judge Andrew Napolitano, Tom Woods, Walter Block, Bob Murphy, Robert Higgs, Tom DiLorenzo, and many other other scholars are among this week’s faculty.

MU banner

Here are just a few highlights:

Tom Woods: Four Things the State is Not.
Walter Block: The Case for Privatization- of Everything.
Judge Andrew Napolitano: The Constitution and the Free Market
Guido Hulsmann: The Cultural Consequences of Fiat Money

The full schedule is here.

Stream the speakers live on YouTube here, or enroll and participate as an online student here.

Steve Forbes Promotes a Gold Standard

Steve Forbes, speaking recently in Las Vegas, continued to advocate a gold standard of sorts–  i.e. pegging the US dollar to gold at (say) $1200 per ounce.  If gold rises to $1300, the Fed decreases the supply of dollars.  It it falls to $1100, the Fed inflates.


He should be commended (as a representative of mainstream politics and the mainstream financial press) for talking about gold, money, and monetary policy generally.  Plus he makes some very good points about the moral hazards engendered by today’s Fed policy:

“People feel that the link between effort and reward has been eroded,” Forbes said.

Inflation, which is nudging upward in the United States, is a “tax,” Forbes said. He questioned how Fed policies that are causing rising inflation and boosting the cost of living for a typical American by $1,000 a year are helping the economy.

With the current quantitative-easing policies, the Fed will keep its bloated balance sheet, Forbes said. The Fed’s action is taking money out of economy and giving it to a wasteful federal government – hurting small businesses that need to be healthy to create jobs, he added.

“The big banks are now simply hand maidens of the federal government,” Forbes said.

“When we had a gold standard, there was little currency trading,” Forbes said. “Now, volume in currency trading is high.”

Fundamentally, however, Forbes’s plan cannot work for the same reason monopoly political institutions cannot work. No central bank can operate independent of financial and political pressure.  Do we expect Congress to insure the Fed adheres to the proposed gold peg rule?  Will Congress mandate this statutorily?  Will the Fed relax or abandon the rule for wars, depressions, and other government-created calamities?

If Forbes really wants to end crony capitalism, why not simply join Ron Paul and advocate free competition in currency?  Then the grand Fed experiment known as the US Dollar can sink or swim based on the preferences of consumers.


Ron Paul Was Dead Right about the Export-Import “Bank”

Just as certain conservatives have attempted to latch on to Ron Paul’s anti-Fed movement (purely for populist political gain), some also recently discovered that the non-bank known as the Export-Import Bank represents (gasp) a form of corporate welfare!


Who knew that Boeing needed a little help from taxpayers like you to sell those beautiful new 737-800s (and they are beautiful) to EgyptAir, for instance? According to the GAO, the Ex-Im Bank finances or guarantees financing for about 25% of Boeing’s sales of wide-body aircraft.

Here’s Dr. Ron Paul arguing against Export-Import Bank reauthorization back in 2002:

In conclusion, Mr. Chairman, Eximbank distorts the market by allowing government bureaucrats to make economic decisions in place of individual consumers. Eximbank also violates basic principles of morality, by forcing working Americans to subsidize the trade of wealthy companies that could easily afford to subsidize their own trade, as well as subsidizing brutal governments like Red China and the Sudan. Eximbank also violates the limitations on congressional power to take the property of individual citizens and use it to benefit powerful special interests. It is for these reasons that I urge my colleagues to reject H.R. 2871, the Export-Import Bank Reauthorization Act.

Read the entire statement (which is excellent) here.

Grudging Nod to ABCT from The Economist

The Economist is often wrong about economics and world affairs.  Worse still, it is almost uniformly tedious and overbearing in tone: its writers generally sound like exasperated parents having to explain for the hundredth time what everybody knows.


But here an Economist blogger gets one thing right, in a piece otherwise riddled with errors (everybody knows that Austrians are wrong about QE and hyperinflation, everybody knows that Austrians favor a dystopian, selfish world, etc).

The insight of Austrian economics that seemed pertinent to me is that credit cycles can be hugely destructive, as the credit often does not find its way into productive uses; just drive around Ireland and see the abandoned houses built a decade ago if you want an illustration. Before 2007, most economists seemed to think that credit didn’t matter, except when it caused inflation; that is clearly wrong.

Clearly the central bank apologists are getting nervous, and they should be.  Even the high priestess of the US Fed is warning that “Monetary policy faces significant limitations as a tool to promote financial stability.”

SIR: Perhaps she can push harder on the string.


The Giants of Austrian Economics, Multilingual Version!

Click here for the image in 28 glorious languages! Many thanks to Mises Institute Summer Fellow Dante Bayona.

Poster AE China

FedSpeak Translated


Paul-Martin Foss provides a helpful translation of Janet Yellen’s recent speech before the IMF, for those who don’t understand the (wildly inflated) language known as FedSpeak.

An example:


Although it was not recognized at the time, risks to financial stability within the United States escalated to a dangerous level in the mid-2000s. During that period, policymakers–myself included–were aware that homes seemed overvalued by a number of sensible metrics and that home prices might decline, although there was disagreement about how likely such a decline was and how large it might be.

Translation: Nobody remembers what I said back in the mid-2000s and these journalists are too lazy to go back and fact-check my record, so I can get away with saying this. They’re not going to watch Peter Schiff’s video about me, in which he demonstrates within the first ten minutes that I had no clue during the mid-2000s that there was a housing bubble.

Nor will they read the speech I gave in January 2007, stating that “While the decline in housing activity has been significant and will probably continue for a while longer, I think the concerns we used to hear about the possibility of a devastating collapse—one that might be big enough to cause a recession in the U.S. economy—have been largely allayed.”

And they definitely won’t read my speech from February 2007, in which I said that “I believe that a soft landing is the most likely outcome over the next year or two.”

Or the speech from April 2007 in which I said: “While a tightening of credit to the subprime sector and foreclosures on existing properties have the potential to deepen the housing downturn, I do not consider it very likely that such developments will have a big effect on overall U.S. economic performance.”

And I really hope they don’t find my prediction from July 2008, less than three months before everything imploded: “I expect the economy to grow only modestly for the remainder of the year, but to pick up next year. The earlier policy easing by the Federal Reserve will help cushion the economy from some of the effects of the shocks, and the fiscal stimulus program is helping at present. Over time, the drag from housing will wane and credit conditions should improve.”